The following events have occurred in the history of the United States:A deep recession hits the world economy.The world oil price rises sharply.S. businesses expect future profits to fall.Explain the combined effects of these events on U.S. real GDP and the price level, starting froma position of long-run equilibrium.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The following events have occurred in the history of the United States:

A deep recession hits the world economy.
The world oil price rises sharply.
S. businesses expect future profits to fall.

Explain the combined effects of these events on U.S. real GDP and the price level, starting froma position of long-run equilibrium.

Expert Solution

Step 1

Meaning of Inflation:

The term inflation refers to the situation under which there is an excessive rise in the prices under economies activities, thus a hike in prices generally occurs due to when an economy faces downfall due to limited resources and scarcity.

Thus limited resources occur due to less production level and thus the quantity of supply gets decreases, thus as supply decreases it increases the price of that limited resources so high that people unable to afford that commodity product and thus inflation occurs.

Step 2

Given Statement:

Explain the combined effects of these events on U.S. real GDP and the price level, starting from a position of long-run equilibrium.

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